The biggest operator of super funds in the nation is the NSW State Government with its four funds controlling $50 billion. Add in NSW Local Government super and their public sector electricity super funds and this total climbs another $8 billion, putting NSW well ahead of Westpac/BT’s $48 billion, AMP’s $45 billion and NAB/MLC’s $44 billion.
It’s not just the State of NSW masquerading as a government but really being a superannuation heavyweight. The Commonwealth Government ranks number five with five funds and $32 billion, Queensland ranks ninth with $27 billion ($31 billion if you include their local government funds), and Victoria ranks 11th with $23 billion or $27 billion if you include their local government fund.
The South Australian, Western Australian and Tasmanian governments run another $24 billion. And all this is before we count the $90 billion operated by the Future Fund Management Agency, which isn’t even superannuation money anyway.
Sovereign Australian Governments running $170 billion in super across almost 30 separate super funds begs the question of why is it that government inquiries keep pointing the finger for more consolidation at small private sector super funds when it’s plain as day that it’s they who should be doing the consolidating.
Maybe because they know the call to consolidation is just a three card trick, or they know it’s just too damn hard when measured against the better efficiencies you’ll achieve with less effort elsewhere.
Try this example. Let’s assume two huge super funds merge and are able to slash their administration costs by a staggering 50 per cent. Fantastic news for members? Not really.
For most not-for-profit super funds, their administration costs are only one-tenth their total costs. If these funds want to make their members better off, the effort should instead go into slashing investment fees or getting more returns grunt out of their investment engines.
Given a choice, however, improving returns is always the way to go. Cutting the average 80 basis point investment cost by one–tenth only gives members another 0.1 per cent. Whoopdee-do. But improving the long-term two-decade average 7 per cent return by the same proportion adds eight times as much to each member’s bottom line.
Now that’s what I call a member gain. And it’s a no brainer that’s where the effort should be going.
Our example highlights why rather than wasting time and energy talking about politically impossible complete fund mergers, trustee boards should be talking about consolidating their investment operations.
If only just a few government funds did this, the scale benefits they would unleash through their new investment juggernauts would instantly transform the entire superannuation industry in Australia.
Even done clumsily it would see investment costs come down one-fifth and returns up one-tenth. The rest of the industry – being private sector not-for-profit funds and retail wealth management groups – would have no choice but to follow the same model lest they end up looking like expensive dinosaurs priced out of the market.
